(Kitco News)- Not only is gold ending the week solidly above $2,500, trading near record highs, but there are strong signs that this latest rally is not over.
While the market is hot, there are no major signs of overheating or frothy volatility that would indicate a peak. According to a growing number of analysts, gold still has plenty of room to rally as the Federal Reserve is just beginning a new easing cycle.
The Federal Reserve has dispelled any doubt that rates will be coming down in September. According to the minutes from the July monetary policy meeting, some committee members saw a case for lowering the Fed Funds rate last month.
“All participants supported maintaining the target range for the federal funds rate at 5-1/4 to 5-1/2 percent, although several observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range by 25 basis points at this meeting or that they could have supported such a decision,” the minutes stated.
On Friday, Powell provided the final confirmation, saying: “The time has come for policy to adjust.”
However, even before these comments, markets had already fully priced in a September rate cut, with a chance of a 50-basis-point move. Heading into the weekend, those expectations have only increased. According to the CME FedWatch Tool, markets see a 36.5% chance of a 50-basis-point move next month.
Some analysts have suggested that markets are getting a bit too aggressive on rate cuts, given that the U.S. economy remains fairly resilient. However, consumers may not be feeling as optimistic as macroeconomic data suggests.
Earlier this week, LegalShield, a legal services company that provides Americans with access to legal advice, counsel, protection, and representation, released its monthly Consumer Stress Legal Index (CSLI). The company reported that its index rose 5.8 points in July to 67.6, the highest reading since November 2020 and the largest single-month increase in over two decades. While a recession might not be imminent, consumers are feeling the pressure of higher interest rates, higher inflation, and growing sluggishness in the labor market.
While a 50-basis-point move may be unlikely next month, the trend is clear, and analysts say it will negatively impact the U.S. dollar. While gold is trading at record highs, the U.S. dollar index is at a low for the year, breaking below 101 points.
But it’s not just gold that is on the move. Silver has pushed above $29 an ounce and is once again outperforming the yellow metal. The gold-silver ratio is currently trading at 84 points, a one-month low.
Silver is benefiting as both a monetary and industrial metal as fears of a global recession begin to ease. The other precious metal remains critical to the electrification of the global economy.
This week, Samsung made headlines for developing a new solid-state (SS) battery, which includes silver as a key component.
This new battery could transform the electric vehicle market. According to reports, Samsung is already working with major automakers to incorporate its SS battery technology into EVs currently in development. The firm has signed an agreement with Toyota to begin mass production of SS batteries in 2027.
Neils Christensen
Neils Christensen has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press. Neils can be contacted at: 1 866 925 4826 ext. 1526 nchristensen at kitco.com @KitcoNewsNOW
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.